July 23, 2015

This article was written by Jane Ashford-Thom and first published in Entertainment Law Review, June 2015.

Introduction

The CJEU has found that the principle of exhaustion does not apply where the physical medium on which a work is reproduced is altered to the extent that a new form of reproduction is created. This case is of particular relevance to licensees and re-sellers wishing to market copyright works in a new format.

Article 4(1) of the Copyright Directive states that Member States shall provide for authors the exclusive right to authorise or prohibit any form of distribution to the public by sale or otherwise, commonly referred to as the “distribution right”. This is balanced by art.4(2), which states that the distribution right shall not be exhausted within the European Union except where the first sale or other transfer of ownership in the European Union is made either by the rightsholder or with his consent. These provisions have been transposed into the laws of England and Wales in Copyright Designs and Patents Act 1988 s.18.

Recital 28 of the Copyright Directive provides that copyright protection includes the copyright holder’s exclusive right to control the distribution of the work incorporated in a tangible article.

In the case of Art & Allposters International BV v Stichting Pictoright, the CJEU considered whether the distribution right applies, or is exhausted, where the physical object incorporating the work has been altered.

Background

Allposters is an online marketer of reproductions of art works, including framed posters and canvases.

Pictoright is a Dutch collecting society which is mandated by artists to exploit their copyrights on their behalf, in particular by licensing and by taking action against infringements of those copyrights.

This case concerned the sale of canvases which incorporated art work taken from posters which had already been marketed to the public with the copyright holders’ consent. The image from the posters was transferred to canvas by way of a chemical process in which a synthetic coating (laminate) is applied to a paper poster, then the image is transferred from the poster to the canvas (referred to as the “canvas transfer process”). After the canvas transfer process is completed, the ink disappears from the paper. Therefore the process does not result in any multiplication of copies of the poster, according to Allposters.

Pictoright issued proceedings against Allposters in the Netherlands, on the basis that Allposters infringed its members’ copyrights by selling these canvas transfers without their consent.

The issues were:

• whether these canvases constituted an “adaptation” or a “reproduction” of the original work, for if so in either case the copyright holders’ consent would not extend to their distribution; and
• whether the copyright holders’ distribution rights were exhausted for the purposes of Copyright Directive art.4(2).

That the copyright holders’ consented to the first sale of the posters was not in dispute.

Allposters contended that, applying Copyright Directive art.4(2), the copyright holders’ consent to the first sale of the posters meant that the distribution right was exhausted in respect of the distribution of the canvas prints. They argued that, as there was no multiplication of the copies as the image no longer appears on the poster, and the ink itself was saved in the canvas transfer process, the canvas transfer process cannot be classified as a reproduction.

Pictoright argued that the shift from poster to canvas by way of the canvas transfer process constituted a new reproduction, so the copyright holders’ consent did not apply to the sale of the canvas prints.

Progress through courts in the Netherlands

Pictoright’s claim was dismissed at the court of first instance, but upheld on appeal to the regional Court of Appeal.

The Court of Appeal cited the Dutch legal principle of the “Poortvliet doctrine” in upholding Pictoright’s appeal. This doctrine established that there is a new publication where a copy of a work is placed on the market in another form. The Court of Appeal took the view that the canvas transfer process constituted a major alteration of the work into a new form and applying the Poortvliet doctrine, rejected Allposters’ argument that the distribution right had been exhausted.

Allposters appealed to the Dutch Supreme court, challenging the relevance of the Poortvliet doctrine and arguing that the copyright holders’ distribution rights had been exhausted under Copyright Directive art.4(2).

The Dutch Supreme Court referred to the CJEU the question of whether the exhaustion principle applied in a situation where a reproduction of a copyright work, which had been marketed in the European Union with the copyright holders’ consent, had been altered and re-placed on the market in a different form.

Applying Laserdisken ApS v Kulturministeriet,the CJEU held that there are two conditions to be satisfied in order for distribution rights to be exhausted:

• The original of a work or copies thereof must have been placed on the market by the copyright holder or with his consent.
• They must have been placed on the market in the European Union.

The CJEU noted that Copyright Directive art.4(2) refers to the first sale or transfer of ownership of “that object”, and Recital 28 refers to the “tangible article” incorporating the work. The use of specific language referring to the physical form of the work led the CJEU to rule that the EU legislature intended to give authors control over “each tangible object” incorporating their work.

The CJEU rejected Allposters’ arguments, and found that the canvas transfer process “results in the creation of a new object incorporating the image of the protected work.” For the purposes of Copyright Directive art.2(a), the creation of the canvas amounted to “a new reproduction of that work … which is covered by the exclusive (distribution) right of the author and requires his authorisation.”

As the copyright holders only consented to the sale of the posters and not any altered medium such as the canvas, the first condition for distribution rights to be exhausted was not fulfilled. Therefore the distribution rights were not exhausted.

This case has been hailed by some as a much-needed affirmation by the CJEU of the principle of exhaustion, or more precisely the application of the principle to copyright works. The judgment confirms that the distribution right in physical copies of copyright works is exhausted except

The position regarding intangible copies of copyright works has been considered in relation to software only, where different rules apply. In UsedSoft GmbH v Oracle International Corp, the CJEU held that the corresponding provisions on distribution rights in the Software Directiveapparently make no distinction between tangible and intangible copies, so that “distribution” in relation to computer programs includes both physical distribution and (what would otherwise be) communication to the public. The principle of exhaustion therefore applies in the relevant circumstances whether a copy of a computer program has been “distributed” physically or online.

After these two cases the issue of how the exhaustion principle should be applied to the communication to the public of intangible copies of copyright works other than computer programs (or for that matter computer programs containing other copyright works) remains explicitly untested. The principles set out in the Copyright Directive art.3(3)are therefore assumed to apply (“The rights referred to in paragraphs 1 and 2 [rights of communication to the public] shall not be exhausted by any act of communication to the public or making available to the public as set out in this Article”).

Copyright owners remain fearful that the decision in UsedSoftUsedSoftUsedSoftVereniging van Openbare Bibliotheken v Stichting Leenrecht,but confirmation of the position is expected.

Conclusion

This case demonstrates that those exercising physical distribution rights and re-sellers of work which has already been put on the market with rightsholder’s consent cannot rely on the principle of the exhaustion under Copyright Directive art.4(2)where they wish to transfer a work to a new medium. While technically speaking there may still be some questions about where the line should be drawn here, distributors and re-sellers should ensure that the scope of their licences or rights covers all intended uses of the copyright work, and re-sellers should be cautious when altering the medium of any work.